Basic understanding of the financial market

June 15, 2018

The financial market is the place where the creation and the trading of various financial assets take place like shares, bonds, derivatives, currencies, etc. It has an important role to play with regard to allocating the limited resource which in turn has an effect on the economy of the country. It acts as an intermediary between investors and savers by mobilizing funds. It offers a platform to the sellers and buyers to meet each other for conducting trading at a price that is determined by the supply and demand force.

Few of the financial market will not have a physical location. The exchange between the traders can be done through the internet. In case of cryptocurrency market, you don’t even have to be in front of the computer to conduct trading. The automated trading robots will buy and sell on your behalf. You need to set your preference before the trading takes place. All you need to learn about the most trusted crypto code can be viewed here.

Functions performed by the financial market

It helps in mobilizing the savings and uses it for productive purpose.

The market helps in arriving at the price of the securities. The regular interaction between the investors and traders helps in fixation of the securities price.

It offers liquidity to assets which are tradable by helping in facilitating the exchange. The traders or investors can easily sell their assets and convert it into cash.

It helps in saving money, effort and time of the people. The traders do not have to go in search of probable sellers or buyers of the assets. Also, it helps in lowering the cost by offering you valuable information that is related to the assets that are traded in the market.

Classification of the financial market

On the basis of claim:

Equity market- It is the market where the traders deal with the equity instruments.

Debt market- It is the market where debt instruments or fixed claims like bonds or debentures are sold and bought between the traders.

On the basis of maturity:

Money market- It is the market wherein the traders deal with monetary assets which will mature within one year like a certificate of deposits, commercial paper, treasury bills, etc.

Capital market- It is the market wherein long-term and medium-term financial assets are traded. It consists of the primary and secondary market.